Moreover, assessing incremental turnover of companies, especially the unlisted ones, will be a herculean task, given the scope for manipulation between group firms, he added.
The government is considering an industry demand to lower the turnover and investment thresholds, and include cotton-based products in a Rs 10,683-crore production-linked incentive (PLI) scheme that is meant for only technical textiles and apparel made of man-made fibre.
In a webinar on PLI on March 5, which was addressed by Prime Minister Narendra Modi, senior industry executives highlighted the limited financial muscle of an overwhelming large percentage of companies in the labour-intensive sector, especially in the wake of the Covid-19 pandemic, to seek a relaxation of the “rigid criteria”, sources said.
According to the draft “focus product incentive scheme”, reviewed by FE, the government has proposed to offer as much as 11% incentive to large companies for investments over Rs 500 crore in greenfield projects in technical textiles. The benefit, however, is linked to an incremental turnover of Rs 1,500 crore in the first year and a 25% rise in turnover each year after that.
It also suggested that firms with an annual turnover of Rs 100-500 crore will be eligible for an incentive of 9% for brownfield projects. This will be subject to an increase in turnover by 50% each year.
Similarly, companies with a turnover of Rs 500 crore or more will be granted a 7% incentive in the first year. The benefit is tied to the condition that turnover has to be raised by 50% in the first year and by 25% each year after that.
The incentives in all the categories will be trimmed by 100 basis points each year after the first year and granted for a total of five years starting FY22.
The draft PLI scheme marks a paradigm shift in the government’s decision-making on two counts. First, it earmarks big bucks for big companies, shedding its long and costly bias towards small businesses. Second, it seeks to correct India’s historical policy preference for a cotton-dominated value chain, which is contrary to the global trend. The idea is to reclaim India’s export markets after ceding substantial ground to Bangladesh and Vietnam in recent years.
A source said given the fragmented nature of the textile and garment sector and the absence of enough large players, the government may be forced to review the turnover or investment criteria. But inclusion of cotton in the scheme seems unlikely at the moment, he added.
Noted textiles expert DK Nair said the scheme seems to be well-intentioned, but the targets, especially for incremental turnover, will be hard to meet. More importantly, investment decisions are typically guided by the prospect of long-term returns, and at the moment, it doesn’t look promising. An incentive regime for a few years can’t substitute hardcore structural reforms to ensure low logistics costs, cheap credit, flexible labour laws, easy land acquisition and abolition of inverted duty structures. So, getting textile companies to undertake large-scale investments still remains an arduous task, given the structural oddities, Nair said.
Moreover, assessing incremental turnover of companies, especially the unlisted ones, will be a herculean task, given the scope for manipulation between group firms, he added.
Raja M Shanmugham, president of the Tirupur Exporters’ Association, said most exporters in the country’s largest garment hub, are small and medium enterprises that have already been hammered by the Covid-19 pandemic. In such a situation, there is a pressing need for setting realistic targets. Also, cotton-based products that undergo high level of value-addition must be included in the scheme, Shanmugham said.
Even before the pandemic struck, textile and garment exports shrank 8.6% year on year to $33.7 billion in FY20. As such, the sector’s share in the overall merchandise exports has been sliding consistently in recent years, having dropped from as much as 13.7% in FY16 to just 10.8% last fiscal, the lowest in around a decade. Globally, while China remains the most dominant player by a wide margin in both textiles and garments, India has been beaten by both Bangladesh and Vietnam in recent years in apparel exports.
The scheme for technical textiles is part of the 13 PLI schemes that the government has announced in the aftermath of the pandemic. The total incentives under 13 such schemes, covering sectors including telecom, electronics, auto part, pharma, chemical cells and textiles, stood at Rs 1.97 lakh crore over a five-year period.
The idea is to lure mainly large companies to create “global champions” out of India that have the potential to grow in size, using cutting-edge technology and can, thereby, penetrate the global value chains.
Published On : 08-03-2021
Source : The Hindu
